US prosecutors have arrested HBSC (HSBC) executive Mark Johnson for his alleged involvement in a front-running scam. Johnson is the global head of foreign exchange cash trading at HSBC Bank, which is a HSBC Holdings subsidiary. Also facing criminal charges is Stuart Scott, who is the former head of HSBC foreign exchange cash trading for Europe, Africa, and the Middle East. He was let go in 2014. Johnson and Scott are the first individuals to face criminal charges in the forex rigging probe.
According to the criminal complaint, which charges the two men with conspiracy to commit wire fraud, in 2011 Scott and Johnson inappropriately used information that the bank’s client gave them about a planned sale of one of the client’s subsidiaries. The client had retained HSBC to execute the foreign exchange transaction, which necessitated changing about $3.5B in sale proceeds into British Pound Sterling.
HSBC was supposed to keep the details of this pending transaction confidential. However, Scott and Johnson allegedly misused this information, buying Pound Sterling for the bank’s proprietary accounts, which they held until the transaction went through. This caused the transaction to take place in a way intended to compel the Pound Sterling’s price to jump up.
This benefitted HSBC, which allegedly made about $8M for making the transaction happen, while costing the client. That financial figure purportedly includes profits made by the alleged front-running engaged in by Scott, Johnson, and other traders who acted under the two men’s instructions. The US government believes that Scott and Johnson made misrepresentations about the planned forex transaction to the client, and this allowed them to hide their actions.
In 2014, regulator in the UK and the US fined HSBC $618M over currency rigging allegations. The bank remains under investigation by the US Department of Justice.
Along with HSBC, JPMorgan Chase (JPM), Royal Bank of Scotland (RBS), Citicorp (C) and UBS (UBS) agreed to collectively pay over $5.25B to settle charges that they rigged the foreign currency markets. Barclays (BARC), Royal Bank of Scotland, JPMorgan, and Citicorp entered guilty pleas to felony charges accusing them of engaging in foreign currency benchmark manipulation related to the US dollar and the euro. Last year, HSBC, Royal Bank of Scotland, Barclays, Bank of America (BAC), Citi, BNP Paribas, Goldman Sachs (GS), RBS, JPMorgan, and UBS arrived at an over $2B settlement with investors who sued over foreign exchange rigging.
Also, this week, the US Federal Reserve Board permanently barred ex-UBS Group AG and Barclays trader Mathew Gardiner from the banking industry. Gardiner is accused of using electronic chat rooms to engage in forex benchmark rigging and share confidential customer information with traders from other banks. Last year, the Board ordered both banks to collectively pay $684M in penalties for control deficiencies involving FX trading.
Gardiner has not been publicly charged. According to Bloomberg News, sources say that he has been assisting U.S. prosecutors in their efforts to file criminal currency rigging charges against individuals who may have violated anti-trust laws.
At The SSEK Partners Group, our securities law firm works with institutional investors and high net worth investors to recoup their losses sustained because of financial fraud. Contact us today.
HSBC Bank Executives Face Charges in $3.5 Billion Currency Case, NY Times, July 20, 2016
U.S. charges two HSBC executives over forex-related scheme, Reuters, July 20, 2016
Ex-UBS Trader Barred from Banking for Currency Rigging, Washington Post/Bloomberg, July 21, 2016